Fil 206-Topic 8

Front 1

Who is the Lessor?

Back 1

Landlord--who holds a leased fee estate

Front 2

Who is the Lessee?

Back 2

tenant- who holds a leasehold estate

Front 3

What are the types of Leasehold Estates?

Back 3

1. Estate for years- it could be for 1 day or 99 years, this estate has fixed starting and ending dates, a sale of property, or even the death of the lessor or lessee- doesnt terminate the lease
2. Estate from Year to year-(Estate from period to period)- may be created by an sxplicit period-to-period agreement or through a holdover tenant situation (both sides agree to go month-to-month after the initial lease expires)
3. Estate at Will
4. Estate of Sufferance- a party whose lease has expired remains in the property against the owner's wishes, In Illinois- the lessor can charge double rent--lessor can't move out the lessee's possessions while the lessee is away

Front 4

Under Characteristics of a lease:

Back 4

Multiple tenancts can have multiple leases or just one joint lease. Bust under a joint lease, each tenant can be held fully responsible for the total rent if the others do not pay (its called being jointly and severally liable)

Front 5

What are some examples of Rights and Responsibilities?

Back 5

1. Possession- the law views the lessee as having broad rights of use and exclusion, so leases usually specify the lessor's right to enter for inspections and other reasons
2. Any legal use is permissible
3. By law, rent is due at the end of the stated term, so most leases specifically call for payment in advance
4. Repairs- most states have laws stating the leased residential property must be fit for habitation and kept in reasonable repair
5. Improvements- made by the lessee tend to be viewed as fixtures that must stay with property unless they are trade fixtures
9. Options- lease might contain one or more of these options:
A. Renewal
B. Purchase- lease may provide for some portion of the past rent to be applied to the purchase price but this outcome is not typical
C. First refusal

Front 6

For commercial property of rent provisions, one of these arragements usually applies:

Back 6

1. Gross Lease- Lessee pays fixed rent, lessor pays all expenses
2. Net Lease- commercial property tenant pays a fixed rent + operating costs of the building
3. Index lease- escalation clause based on the CPI or other index, or maybe on the value of the property
4. Percentage lease- common for retail property: Lessee pays to lessor- base rent + % of gross sales receipts
5. Agricultural lease- rent may be cash, share of the crops produced or a hybrid share-cash lease
6. Sale-leaseback
7. Ground Lease- tax planning tool (a business can realize income tax breaks on a building it owns by claiming annual depreciation deductions, and realize an income tax break on the underlying land by deducting the lease payments- land can't be depreciated, so owning the land might be of great importance to the business)

Front 7

For Transfer of interests- unless prohibited under the lease, a lessee's interest can be:

Back 7

1. Assigned
2. Sublet- original lessee turns possession over to a sublessee- can arise form an intentional plan, under which a lessor shifts risks by leasing a large amount of space to a tenant, who then tries to profit by subleasing the space for more than the steady rent being paid to the lessor
3. Mortgaged- if the leasehold has value

Front 8

Lessor's remedies if lessee breaches lease agreement:

Back 8

1. Distress for rent due- lessor gets a court order and seizes the lessor's personal property
2. Sue
3. Get court order and evict the lessee- if lessee is evicted his liability to pay rent ends